The Colorado legislature has spelled out step-by-step how to approach construction
defect claims against contractors in the Construction Defect Action Reform
Act, C.R.S. §13-20-801 (CDARA). For example, CDARA protects both
homeowners and contractors by requiring homeowners to give contractors
notice that legal action may be pursued as a result of defects in their
construction and offer them an opportunity to cure the problems before
a lawsuit is filed.
CDARA offers additional protections for residential property owners through
the 2007 enactment of the Homeowners Protection Act, C.R.S. §13-20-806(7)
(HPA). One thing that CDARA does through the HPA is render any express
waiver or limitation on legal rights, remedies or damages, or waivers
on the ability to seek a legal remedy for such limitations, as void against
But what happens if you signed a contract that waives those rights before
the HPA was enacted in 2007? The Colorado Court of Appeals has announced
their stance on the issue in Taylor Morrison of Colorado, Inc. v. Bemas
Construction, Inc. et al., 2014 Colo. App. LEXIS 140. In this case, Taylor,
a residential developer, contracted with Terracon, a geotechnical engineering
company, to perform soil testing services at the site of a future residential
subdivision. Taylor then contracted with Bemas for site grading at the location.
After constructing the homes, Taylor received complaints from the homeowners
about cracks which were forming in their drywall. Taylor then spent a
lot of money to cure the defects and eventually filed a lawsuit against
Terracon and Bemas, asserting that they were the reason for the cracking.
This article focusses on Terracon’s role in the lawsuit.
At trial, Terracon pointed out that their contract with Taylor, which was
signed prior to HPA’s enactment, limited Taylor’s claims for
damages to $550,000. Taylor argued that the limitation violated the HPA
and therefore, Taylor was entitled to more money in damages.
Terracon, in an effort to keep their liability at $550,000, argued two
points to the trial court. First, Terracon argued that the HPA was enacted
for the protection of homeowners only, not commercial entities like Taylor.
Second, Terracon argued that applying the HPA to their contract with Taylor
violated Article II, §11 of the Colorado Constitution because the
contract was signed before the HPA was enacted. The trial court agreed
with Terracon that the HPA only applied to homeowners, not commercial
entities and ordered that Terracon would only be liable for $550,000 as
the contract stated. Taylor then appealed the decision. The appellate
court upheld the trial court’s decision, but not for the same reasons.
Rather than decide if the HPA only applies to homeowners, the Court of
Appeals based their decision solely on Terracon’s second argument,
that retroactive application of the HPA to contracts, like the one in
this case limiting damages, was unconstitutionally retrospective.
What does that mean and what is the difference between retroactive and
retrospective? A law is retroactive when it applies to facts and transactions
which have already happened prior to the law’s enactment. A law
is retrospective if it creates, eliminates, or modifies vested rights
or liabilities. The court considers factors such as public interest, the
parties’ intentions and expectations, and the element of surprise
due to reliance on contrary law, in determining if a retroactive law is
In this case, the Court of Appeals reached their decision based upon several
factors. First, the contract was not dependent upon the existence of a
statute or common law rule. Second, case law existing at the time of the
contract formation would create a reasonable expectation that the $550,000
provision would be upheld. Third, because of this reasonable expectation,
striking the $550,000 provision would come to Terracon as a surprise.
Additionally, Terracon had no reason to believe that the HPA would be
enacted and affect the contract. Finally, the Court of Appeals balanced
Terracon’s rights in the contract against public policy and found
that in this case, where it was two sophisticated construction professionals,
bargaining power in the formation of the contract existed between both
Taylor and Terracon. On this final point, the Court of Appeals noted that
the HPA was aimed to protect consumers who had no bargaining power and
were forced into signing contracts containing waivers of their rights.
So, does the HPA only protect homeowners? The answer is still unclear because
the Colorado Court of Appeals specifically refused to tackle that question.
However, it is certain that the level of sophistication of the parties
will continue to play a role in determining whether applying HPA to each
individual case is retrospective and thus, unconstitutional.
What this means for you. Most importantly, if you have a question about
the HPA regarding a pre-2007 contract, call our office as soon as possible
so we can help you learn your rights. Construction defect law is a very
complex area and cases like this only add more wrinkles to the fabric.
Obviously, the further along we get from 2007, the less this case will
matter in terms of CDARA and the HPA. However, there has been much talk
in reforming CDARA in the last few legislative sessions and this case
will have a lasting impact on any reforms that may take place in the coming years.